CANADA UNITED STATES TRADE CENTER OCCASIONAL PAPER NO.

30

Boeings Diffusion of Commercial Aircraft Design and

Manufacturing Technology to Japan: Surrendering the US
Aircraft Industry for Foreign Financial Support

By David Pritchard and Alan MacPherson

Canada-United States Trade Center

Department of Geography
State University of New York
Buffalo, New York 14261

March 2005

The views presented in this paper are those of the author(s), and are in no way policy statements of the
Canada-U.S. Trade Center or the State University of New York at Buffalo.

Boeings Diffusion of Commercial Aircraft Design and Manufacturing Technology to Japan:

Surrendering the US Aircraft Industry for Foreign Financial Support. By David Pritchard and
Alan MacPherson, Canada-United States Trade Center, Department of Geography, University at
Buffalo.

Abstract
This paper offers a critical commentary on the technology transfer through commercial aircraft
outsourcing that has had a major impact on developing the build and design capabilities of the
Japanese aerospace industry. This has evolved from a simple build to print subcontractor
relationship to a turnkey design and build risk-sharing partnership. Using the Boeing 767, 777
and 787 as examples, we argue that the motives for Boeings commercial outsourcing to Japan
are to access the market, spread risk, gain access to capital, and lower US spending on research
and development. This has clear implications for US trade and employment, in that Japanese
subcontracting boosts foreign imports and reduces the need for domestic production workers and
US suppliers. From a trade perspective, however, a potentially troubling feature of allowing the
Japanese to produce large commercial aircraft subassemblies is that major Japanese public
financial supports are involved which contravene existing international agreements on
production subsidies. This paper reviews the types of production contracts that Japanese
companies have sought on the Boeing 767, 777 and 787 programs. These contracts have allowed
the Japanese to develop new capabilities in terms of production capacity, tooling, design and
final assembly. Ultimately, these capabilities imply that Japan will eventually enter the market as
a fully-fledged producer of commercial aircraft. This does not bode well for the western
aerospace sector, since the Japanese government has recently funded a research program to
produce a regional jet aircraft.
Introduction
The commercial aircraft industry has long served as a symbol of US export leadership in
product-markets that require high levels of design and engineering innovation. This industry
has been the top US export sector for more than 50 years (United States Department of
Commerce, 2004), and many of the advanced production and engineering procedures developed
by this sector have been successfully transferred to other US industries (e.g., automotive,
electronics, metal fabricating). In recent years, however, the US commercial aircraft industry
(NAICS 336400) has experienced substantial employment decay, reduced exports, and rising
foreign competition. On the employment front, for example, the industry moved from 552
thousand jobs in 1994 to an estimated 432 thousand jobs in 2004 (a loss of 120 thousand
positions). Contrast this with 1990, when the industry accounted for over 840 thousand jobs. In
the space of only 15 years, this sectors employment base has been cut in half. Significantly, the
US Bureau of Labor Statistics (2004) forecasts a further 17 percent employment decline by 2012.
The export picture is equally disturbing, in that overall trends for SITC 792 (aircraft and
associated equipment) have been downward since 1998. For example, total exports in 2002 were
approximately $44 billion, compared to $52 billion in 1998 (a drop of 15 percent, or $8 billion).
While part of this can be blamed on shrinking commercial aircraft orders in the post-9/11
environment (as well as increased competition from Airbus), the trend toward global outsourcing
for components and assemblies is also part of the story. In recent years, for example, the sole
2

remaining US manufacturer of large passenger jets (Boeing) has opted for a systems integration
mode of production. Under this system, key components and sub-assemblies are designed and
manufactured by external suppliers. Boeing has especially favored Japanese companies for major
subcontracts (see Pritchard and MacPherson, 2004A). While this represents a logical strategy
from a financial standpoint, a potential downside is that the Japanese subcontractors and/or risksharing partners must receive infusions of tacit scientific and technical knowledge from Boeing
(otherwise the strategy would not be effective). This raises an important question that ought to be
of interest to trade policy analysts that are concerned with national industrial competitiveness.
Specifically, to what extent does technology transfer to Japanese companies represent a good
idea in terms of long-run economic or industrial effects for the US aerospace industry?
Set against this backdrop, our paper is organized as follows. Section 2 provides a research
context for the discussion. This section reviews the evolution and development of industrial
offset agreements and other types of production sharing arrangements with the Japanese
aerospace industry. Next, Section 3 reviews the Japanese aircraft industry as a National Project
that has developed under Boeings industrial offset programs. Section 4 discusses Boeings
growing dependence upon Japans composite technology due to a lack of US investment in
materials-based research and development (R&D). Section 5 introduces a number of new
strategic issues with regard to Boeings 787 aircraft launch. Japanese companies for the first
time will be selecting second and third tier suppliers. Section 6 reviews the Japanese funding on
the Boeing 787 and World Trade Organization (WTO) issues which could delay the first delivery
of the 787 in 2008. The paper concludes with a brief discussion of the strategic issues that arise
from these developments. We believe that the Japanese commercial aircraft industry will soon
create its own stand-alone aircraft program while simultaneously developing a low-cost Asian
supplier network.
2. Research Context
The term industrial offset refers to a compensatory trade arrangement where the exporter grants
concessions to the importer. In the commercial aircraft industry, these concessions typically take
the form of production-sharing agreements. 1 One of Boeing's early offsets was with Japan in
1974, when Mitsubishi was given contracts to produce inboard flaps for the Boeing 747. Major
sales of 747s to Japan followed. In most of these cases, the goal has been to secure a sale that
would not have taken place in the absence of compensatory provisions. Boeing has become the
nation's largest corporation in terms of offset-related commitments (Pritchard, 2001). In 1960,
imports of aircraft and parts amounted to only 5 percent of aircraft exports by value. Today, that
figure is 45 percent. Foreign content for the 787 might run as high as 70 percent. The foreign
content of a Boeing 727 in the 1960s was only 2 percent. For the 777 in the 1990s, foreign
content was nearly 30 percent.
As part of the launch process for the 787, three Japanese companies are expected to create the
manufacturing processes for final assembly of the wing. Boeing has never considered
subcontracting wing production to external suppliers before. Given that Japan has incrementally
1

While Airbus also operates with industrial offset agreements, these agreements are typically for older Airbus
products. Newer models are more often sold with indirect offsets (e.g. the provision of landing rights to major EU
airports such as Heathrow and Gatwick).

acquired production competence for a wide range of airframe components via years of industrial
offsets from Boeing (see Pritchard, 2002), the transfer of wing manufacturing and assembly
expertise to Japanese companies effectively gives Japan total production competence with
regard to commercial airframes. Japan has already announced that it wants to produce
commercial aircraft (Pritchard and MacPherson, 2004B). In fact, Mitsubishi announced in 2002
that it was conducting a joint feasibility study with Boeing for a 30 seat regional jet, which
would receive $206 million of financial support from the Japanese government (Seattle PostIntelligencer, 2002). In this regard, it is likely that Japan's first airliner will be an all-composite
regional jet - a competitor to Canada's Bombardier and Brazil's Embraer. Some experts believe
that the next generation of Boeing's 737 will be an all-composite airframe produced totally in
Japan.
3. Japans Commercial Aircraft Industry-National Project.
The Japanese Aircraft Development Corporation (JADC) is a consortium of Japanese aerospace
companies that seeks to introduce advanced commercial aircraft programs. The main partners are
MHI (40%), KHI (30%), FHI (20%), Nippi (5%), and SMI (5%). JADC is responsible for
coordination of participation of Japanese Aerospace Industry companies in international projects
promoted by the Ministry of Economy, Trade and Industry (METI).
The national goal for METI and the industrial sector has been to revitalize Japans aeronautics
industry. The industry is now being aided by a METI-financed foundation, the International
Aircraft Development Fund (IADF). This new foundation has offered the 3-company consortium
(Japans aircraft manufacturers) a $3 billion low interest loan to ensure Japans participation in
the 787 program (Sakai, 2004).
The goals of JADC are to advance and further the development of civil aircraft through research
and other appropriate means so that it may promote the improvement and development of the
aircraft industry. The JADC is a non-profit foundation established for the enhancement of
Japans aircraft industry with the approval of the Japanese government, and is managed by the
top executives of the following Japanese aircraft companies (FAC, 2004):

Mitsubishi Heavy Industries, Ltd. (MHI)

Fuji Heavy Industries Ltd. (FHI)
ShinMaywa Industries Ltd.
Japan Aircraft Manufacturing Co., Ltd. (JAMCO)
Ishikawajima-Harima Heavy Industries Co., Ltd. (IHI)
Japan Airlines Co., Ltd.
All Nippon Airways Co., Ltd.
Japan Air System Co., Ltd.

The Boeing 767 was the first US aircraft program that entailed substantial international
cooperation in developing commercial transport since 1970. It can be inferred that there were
four major reasons for cooperation between companies in Japan and the United States at this
time, including risk-sharing, enhanced capabilities through cooperation, participation in
development/market entry, and mutual profit-taking.

The next project was the international joint development of the Boeing 777, which started in
1991 and continues today. The structure of partnership in Japan is almost the same as that for the
B767. For the B777's development, Boeing and Japan Aircraft Development Corporation
(JADC) constitute the core promoting organizations. Mitsubishi Heavy Industries (MHI),
Kawasaki Heavy Industries (KHI), and Fuji Heavy Industries (FHI) are taking part in airframe
development and production, playing a key role as program partners. Besides airframe
manufacturers, some 30 manufacturers also have been involved in Boeing's commercial transport
programs as suppliers and/or subcontractors. In 2004, JADC and Boeing agreed to the jointdevelopment of the Boeing 787. The Japanese heavy firms Mitsubishi, Fuji and Kawasaki are
slated to build 35 percent of the 787 aircraft structure, which will include the design and
manufacturing specifications in comparison to a build-to-print relationship on previous Boeing
programs. The JADC received budgets for pre-development activity that supported sending 140
Japanese engineers to Seattle before the program contract was finalized between Boeing and the
Japanese companies.
Thomas Pickering, Boeings senior vice president for international relations, recently stated that
Japan did less than 10 percent of the (Boeing) 767 and 20 percent of the 777 (Shimbun, 2004).
From 1978 to 1983, the Japanese government covered about half of the costs of developing parts
built by the Japanese companies for the Boeing 767 (Belson, 2004). In the 1990s, Japanese
companies spent 104.5 billion yen ($942 million) to develop parts for the Boeing 777, aided by a
60 billion yen loan from the Japanese government (Belson, 2004). Today, these three Japanese
firms will have full responsibility for tooling their factories for wing production. This is the
first time we have ever put the full winginto the hands of a partner, said Thomas Pickering
(Gibbs, 2004). He further stated, We said (Boeing) lets spread the risk and spread the
benefitthey get the advantages but they also carry the burden.
Boeing says it expects contracts with its tier-one suppliers to be finalized by the beginning of
2005 (Table 1). The first tier suppliers will select, contract and oversee the second and third tier
suppliers in mid 2005. The 787 program will be the first time that a first-tier supplier will
control the selection process of second and third-tier suppliers in a Boeing commercial aircraft
program. This should cause alarm to the U.S. supplier base, since the government of Japan will
be subsidizing the 787 program up to $3 billion (Pritchard and MacPherson, 2004A). It should
be expected that the aerospace infrastructure of Japan would be developed with new national
suppliers being chosen for receptivity for the government funding. In an interview with Bill
Lewandowski, Vice President of the Supplier Council for the Aerospace Industries Association,
two concerns were raised: the first being that upper tier U.S. suppliers (sigma three group)
would probably be only offered to quote against Japanese second and third tier suppliers, and,
secondly this U.S. group would have difficulty communicating with the overseas first tier
suppliers since they arent export ordinate. (Lewandowski, 2004)
A snapshot of the evolution of Boeings outsourcing strategy is shown in Table 1, which tracks
the growth of international production sharing for key aircraft components across four airplane
programs. There has never been any significant foreign content for early models such as the 727.
From the 767 onwards, however, foreign partners have clearly become increasingly important.

Table 1. Outsourcing Trends for Boeing Airframe

Airframe
Wing
Center Wing Box
Front Fuselage
Aft Fuselage
Empennage
Nose

727
US
US
US
US
US
US

767
US
Japan
Japan
Japan
US
US

777
787
US
Japan
Japan
Japan
Japan Japan/US
Japan
Italy
Foreign Italy/US
US
US

Equally important is the fact that Boeings outsourcing arrangements over the past 30 years have
expanded from simple structure parts on the 747 to complex center wing boxes for the 777
(Boeing, 2005). Below is a listing of major component subcontracts to Japan that covers Boeing
commercial aircraft programs (717, 737, 747, 757, 767 and 777):
MHI (Mitsubishi)
Inboard TE Flaps 747-400
Inboard Flap 737-600/-700/-800/-900
Passenger Entry Doors 777-200/-300
Fuselage Section 46,47, 48 777-200
Bulk Cargo Door 777-200, 777-300
Pressure Dome Bulkhead 777-200
Entry Service Doors 767
Fuselage Section 46 767
Dorsal Fin 767
Fuselage Section 46, 47 777-300
FHI (Fuji)
Inboard/Outboard Spoilers 747-400
Inboard/Outboard Aileron 747-400
Elevator 737-600/-700/-800/-900
Wing Stub Sec 11 777-200
Wing Body Fairings 777-200
Main Landing Gear Doors 777-200
Body Fairing, Main Landing Gear Doors 767, 777-300
Wing Stub Sec 11 777-300
Outboard TE Flap 757-200/-300

KHI (Kawasaki)
Outboard TE Flaps 747-400
Wing Ribs 737-600/-700/-800/-900
Large/Small Cargo Door 777-200, 777-300
Fuselage Sec 43,45 777-200
Keel Beam 777-200, 777-300
Inspar Ribs 777-200
Entry Service Doors 767
Fuselage Section 43,45 767
Inspar Ribs 767
Fuselage Section 43,44,45 777-300
Section 48 Pressure Dome Bulkhead 777-300
ShinMaywa Industries
Elevators 717
Elevator Tabs 717
Horizontal Stabilizer 717
Pylon 717
4. Boeings Growing Dependency on Japan
Japans technological leadership in composites is one reason that Boeing is going to contract 35
percent of the 787-airframe structures to Japan. In an interview with Paul Lagace, MIT Professor
of Aeronautics & Astronautics and Engineering Systems, the United States lags behind Japan,
Spain and Russia in aircraft composite technology (Lagace, 2004). Boeings airframes have
changed very little since the introduction of the 747. With Airbus introducing major
technological advances over a relatively short corporate lifetime, Boeing has been forced to
move into this all composite aircraft. In the past, when Boeing was the worlds leader in
commercial aircraft manufacturing, it rested on its position in the industry and did not invest
heavily in research and development for its commercial product line.
A further cause for concern is that Boeing has been trailing Airbus for many years with regard to
R&D spending and capital investment (see Figures 1 and 2). In 2003, for example, Airbus
allocated 9.5 percent of its total revenues toward R&D, compared to 3.5 percent for Boeing. In
the same year, Boeing allocated only 0.97 percent of its total revenues to capital investment,
compared to 9.1 percent for Airbus. While these percentages will no doubt increase as the A380
and 787 programs unfold, the fact that Boeing has underinvested for so long suggests that the
catch-up game in technological and engineering terms will be difficult to play. This decline
dismantles U.S. technological and manufacturing communities from within, eroding the network
of relationships, expertise and authority developed over decades (Sorscher, 2004).
Boeing is looking to leapfrog Airbus on composite technologies for the 787 aircraft. The
strategic goal of low technological risk and low financial exposure makes it logical to partner
with JADCs composite leaders. For example, Boeing recently awarded a 12-year contract worth
$3 billion to the Japanese firm Toray for the carbon-fiber composite material to be used on the
787 aircraft (Gates, 2004).

Source: Annual Reports. Note: peruse the vertical scales before making interpretations
But this dependency on Japan should not come as a major surprise. Recent developments reflect
a continuation of the concerns that were discussed in a 1994 monograph High-Stakes Aviation
by the National Research Council. The authors interviewed Charles Wessner, Director of
Technology and Innovation, National Academy Sciences in March 2004. Wessners principal
concern is that the 787 wing technology and larger composite structures being sourced to Japan
will ultimately curtail US innovation capability and compromise US security interests (Wessner,
2004). Perhaps ironically, some of the advanced composite technologies and related processes
developed by Boeing (McDonnell Douglas Commercial) under 1989-1997 NASA R&D funding
(the $354 million Composite Wing Development Program), as well as some $54 million in
NASA funding for the Composite Fuselage (1989-1996) along with funding under the Advanced
Subsonic Program (1993-1998), will be delivered to the Japanese under the 787 program. It
would seem that U.S. tax dollars that were originally spent to promote U.S. technology
development will soon be indirectly employed to upgrade that manufacturing and materialshandling capabilities of foreign companies.
5. Japans New Strategies for the Boeing 787
The technology and process improvements required for the 787 go far beyond raw material
requirements (composites). Boeings partners in Japan will be building composite structures that
are stuffed with sub systems that are already certified, tested and ready for final assembly. There
will be minimum work content for the less than 1,000 Boeing Everett workers on the 787
program. The economic impact for the Japanese aircraft industry will have major multiplier
effects, with the three Japanese heavies in control of second and third tier supplier selection.
The spread of subcontracts for the Japanese airframe manufacturers might add as many as 75
Japanese sub-tier suppliers. This does not include the estimated 60-second tier Japanese engine,
equipment and material suppliers, which can could add a further 100 third-tier Japanese
suppliers.

The development of Japanese aerospace industrial base does not come without a price. Boeing
has not finalized its program contracts with the Japanese companies (MHI, FHI and KHI) due to
the definition of design and build responsibility. Early on in the program, Boeing envisioned
that the Japanese would sign on as risk-sharing partners. In light of uncertainties regarding the
Japanese governments funding scheme (uncertainties which have stemmed from WTO subsidy
issues), as well as limited progress on securing first production article delivery schedules, no
program contracts have been awarded.
In a recent article by Eamonn Fingleton, we find that: in outsourcing the 787 wings, Boeing is
crossing an economic Rubicon...no Boeing plane has ever flown on foreign wings (Fingleton,
2005). Fingleton was questioning Boeings judgment on transferring closely guarded wingmaking technology to the Japanese. He further went on to assert that wing-making is one of the
most advanced sub-sectors of one of the worlds most advanced manufacturing industries.
Boeing responded to this criticism by stating that when it came time to build the 787 wings,
Boeing didnt have the machines and tools to build the wing box out of the carbon-fiber
composites that will make the majority of the wing. (Corliss, 2005). The flaw in Boeings
argument is that Japan did not have the machines or tools either. In fact, the Japanese companies
are only now purchasing hundred of millions of dollars in all new composite automatic tape
layering machines, tooling, and autoclaves to meet the 787 structure sizes and production rate
requirements. This reinforces already existing fears that Boeing will not invest in its future with
major upgrades in terms of capital equipment or infrastructure. While the Japanese are building
new facilities to produce the 787 wing and airframe, Boeing is simply reorganizing space inside
its existing Everett facility to make space for the 3 day 787 final assembly activity.
6. Japans 787 Funding and WTO issues
The Japanese governments funding package for the 787 has been delayed several times since the
first framework was announced in March 2004. The previous Japanese government international
funding schemes for the Boeing 767 and 777 aircraft programs would be ruled illegal under
todays 1994 WTO Agreement on Subsidies and Countervailing Measures (SCM Agreement).
We are estimating that the Japanese government support for the 787 development will be $1,588
million, which is likely to be split 30% non-repayable grants and 70% in repayable loans
(Pritchard and MacPherson, 2004A). Such a scheme is attractive because it provides market and
development risk mitigation for the 787. Ultimately it lowers manufacturing costs of Japanese
suppliers. These cost savings, which are subsequently passed through to Boeing can then be
translated in lower prices in the market place.
In late 2004 it seemed that the Japanese government-funding scheme was being delayed because
of the introduction of a repayment scheme (royalty-based loans) per wing-set delivered from first
production delivery. On previous schemes, for the 767 and 777, Japanese government financing
allowed Japanese industrial partners to Boeing to make a profit before making any loan
repayments to the government (typically the delivery of the 500th ship set on 2,000 production
run). This proposed change would not allow the JADC companies to have time to recover their
own funding before the repayment of the Japanese government loans.

It is interesting to note that the current WTO dispute between EU and US governments concerns
precisely this kind of launch aid subsidy. The US government is complaining that EU
governments subsidize Airbus through royalty-based loans. Ironically it seems that whilst
Boeing complains about this system being used by its competitor, it is happy to see the same or
an even more generous system used by its Japanese suppliers to reduce its own manufacturing
costs for the 787. If the US government is successful in stopping the EU system through WTO
litigation, this will probably result in Boeing also suffering from similar sanctions applied to the
Japanese system.
If these low interest loans were not available to Japanese risk-sharing partners, it might be
necessary for the Japanese companies to forgo the Japanese government-funding scheme and
obtain loans from their own banks. However in early 2005 it now seems that the JADC has
elected to apply to the Japanese government for loans of up to $1.5 billion and these loans will
be granted.
As these loans so similar to the EU loans to Airbus, if the EU-US fail to agree on a revised
framework for the 1992 EU-US aircraft agreement, the probably of the EU filing a WTO
complaint on Japanese 787 subsidies seems likely.
This filing could have short and long term ramifications for Japans capabilities for producing
composite aircraft. In the short term, one could speculate the EU/WTO complaint on the 787
could have two probable outcomes. First, the Japanese government could halt any future
payment to the JADC which would at the very least delay the 787 first delivery by at least a year
while the Japanese heavies search the financial community for $3 billion of funding to support
the 787 program (see Table 2). Secondly, the 787 WTO case could take up to 4 years to get
resolved, during which the Japanese government continues to fund the 787 program and deal
with the WTO decision after most of the money has been transferred to JADC. The longer-term
ramifications would be that a delayed 787 program (could be up to two years) by a EU WTO
filing could cause 787 risk-sharing partners and suppliers to lose their appetite for this type of
financial exposure.

Table 2. Japans 787 Investments

Companies

Components
Investment
MHI
Wing and Engines
$900
FHI
Airframe
$400
KHI
Airframe and Engines
$650
IHI
Engines
$350
ShinMaywa
Airframe
$150
Toray
Composite material
$250
Second Tier suppliers Equipment and systems
$300
Total Investment (millions) $3,000
10

On a traditional Boeing aircraft launch, the program schedule would have key suppliers and
critical path equipment contracted within the first 90 days, but the 787 still does not have its firsttier Japanese airframe partners contracted as of February 2005. This 7-month delay in all
likelihood reflects problematic program funding along with incomplete agreement regarding
design and build responsibility between Boeing and the JADC. After contracting the Japanese
first-tier airframe partners in the first half of 2005, Boeing has an approximately 24-month
window before the first scheduled 787 flight. Coupled with the fact that this is a very complex
exercise in international systems integration, the aggressive first flight target date of mid 2007
may prove to be difficult to meet.
Implications
In the future, new western produced large commercial aircraft will be made of composites, while
the traditional metal wing and tube aircraft (less than 150 seats) will be increasingly produced in
the emerging regions (triad) of Russia, China, and India. With Boeing transferring the golden
key technologies of the wing and the development of large composite airframe structures to
Japan, the Japanese will with have final pieces of technologies to produce their own aircraft.
Mitsubishi Heavy Industries certainly has a clear vision on where the new aircraft composite
technology for the 787 can lead them in the future. Junichi Maezawa, Executive Director of
MHI, said that the 7e7 (now the renamed the 787) is a cornerstone for Japan to become a standalone aircraft manufacturer in producing a 30 to 50 seater aircraft in a few years (Shimbun, A
2004). At first, the most probable model will be an all-composite regional jet (threat to
Bombardier and Embraer), followed by mid-size aircraft. Some industry experts believe the next
generation 737 (an all-composite replacement) will be totally produced in Japan. So, with the
technology and innovations being developed overseas, where does this leave the existing US
supplier base and the nations future engineering capability? The average US aerospace worker
is 49 years old. With the tens of thousands of layoffs from Boeing in the past 4 years, there are
few young workers to pass the technological and tribal knowledge for designing and
manufacturing commercial aircraft. The result is a threat to the technical and economic security
of the West where the integration capabilities exist. Regarding the retention of aircraft-related
technological expertise inside the U.S., an interviewee from MIT (Paul Lagace) noted that: you
cant expect a private corporation to hold this responsibility, a national policy should be
developed (Lagace, 2004). A similar concern for long term technology and innovation (tribal
knowledge) retention was voiced by Mark Tuttle, Professor of Mechanical Engineering at the
University of Washington in a March 2004 interview (Tuttle, 2004). Jacques Tournut, Director
of the Aerospace Program at the Toulouse Business School, in a March 2004 interview, went on
to question the wisdom of transferring the critical wing design and manufacturing technology for
the 787 outside the companys control to a risk sharing partner (Tournut, 2004).
Boeings product line is rapidly aging, with 4 of the 6 commercial product lines projected to
close in the next few years (717, 757, 767 and 747). This leaves only the 737 and 777 in
production until the 787 comes on line. One has to question whether the 787 is too late in
arriving to save the Boeing commercial product line. In the future, moreover, will Boeing and
foreign partners be willing to invest enormous sums of money to keep developing aircraft
models? This is illustrated by a statement from Sir Richard Evans, the outgoing chairman of
BAE, who estimated Boeing would need to spend between $40 to $50 billion over the next 1015 years to match Airbuss product range (Odell, 2004).
11

In light of the scenarios and trends discussed above, it is no surprise that the US Bureau of Labor
Statistics (2004) has a number of dismal forecasts for employment and occupational change
within the US commercial aircraft industry. As mentioned at the start of this paper, the overall
employment forecast over 2002-2012 is for a 17.6 percent decrease. At the level of specific
occupations, the forecasts are even more revealing. Specific examples include machinists (22%), machine tool cutting setters (-24.2%), assemblers and fabricators (-24.7%), aerospace
engineers (-15.8%), mechanical engineers (-21.5%), and industrial engineers (-15.8%). These are
the people that design and build commercial aircraft. While some of these projected losses will
surely come as a result of increased process automation (rising productivity) or retirements, just
as they have in the past, the growth of international outsourcing is surely an important factor as
well.
Summary and Conclusion
For Boeing, the launch of a new aircraft program based on systems integration makes good sense
in terms of risk reduction, the containment of launch costs, and the acquisition of advanced
composites. But the financial advantages need to be balanced against broader economic and
strategic concerns, including the rapid erosion of the US supplier base, the possibility that Japan
may eventually become a US/EU competitor with its own stand-alone aircraft program and a
low-cost Asian supplier network, and the fact that rising levels of foreign content ultimately
contravene the interests of US workers in skilled occupations. In the past, Boeings foreign
subcontractors supplied relatively simple components (bits and pieces). More recently, these
subcontractors have been asked to design, develop, and build complex parts of the airframe (e.g.
wing assemblies). Airbus, in contrast, keeps final wing assembly work almost 100% in-house (as
well as other complex systems).
It could be argued that the future of Boeings presence in the commercial aircraft business, as
well as the income security of its diminishing workforce, hinges in large part on the success of
the 787 program. Based on Boeings system integration model one could envision within 10
years that all of Boeings commercial aircraft could be downsized to a single site in Everett,
Washington. This is reinforced by the recent agreement to sell the Boeing Wichita commercial
division to the Onex Corporation, a Canadian company. After the Wichita sale, the only major
part of the 787 to be made by Boeing will be the tailfin (the rudder is subcontracted to China).
The US commercial aircraft industry was vibrant in the 1960s, with three commercial aircraft
manufacturers (Boeing, Douglas and Lockheed) and thousands of US sub tier suppliers spread
across the United States employing hundreds of thousands of people. Now with Boeing in the
final throws of dismantling this industry, one could foresee only a couple of thousand workers in
the Everett Plant conducting a 3 day final assembly process for the 787, 737 replacement and a
reconfigured 777 production line supported mainly by foreign controlled supply chains. For the
first time in US commercial aviation history, a new aircraft launch has been structured in a
fashion that gives foreign partners the control over design, manufacturing, sub tier supplier
selection and, ultimately, the financial muscle to destroy what little remains of the US
commercial aircraft industry.

12

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